Retail health mixed in Knox

National clients having tough time, but smaller ones do OK

The Metropolitan Planning Commission has issued a report saying Knoxville has more commercial space available, but also more vacant space
because of the economy.

The spot where Circuit City used to be is available
for lease. The location on Parkside
Drive has 34,942 square feet.

Knox County's stock of retail shopping centers is still growing, but filling all that space with live tenants is another story.

Earlier this month, the Metropolitan Planning Commission released its latest analysis of the local shopping center market, which painted a mixed picture of retail health.

The report found that leasable space was up 4.8 percent from 2006 to 2008, outpacing the growth in either of the last two surveys. On the other hand, the vacancy rate in those shopping centers was 9.2 percent, up sharply from 6.5 percent in 2006.

Roger Moore, president of Knoxville real estate brokerage firm Sperry Van Ness/R.M. Moore, said his firm is seeing a "pretty good increase" in demand for small retail spaces. But Moore said when it comes to national tenants, the problem is that "it might be OK in Knoxville, but all over the rest of the country it may not be going so well for them."

One place to see the impact of struggling chains is in West Knoxville's Turkey Creek shopping center, which in recent months has seen both Goody's Family Clothing and Linens 'N' Things close their doors after their parent companies declared bankruptcy.

Those closures have left an 85,000-square-foot hole in one portion of the shopping center, and presented a challenge to the landlord, Ohio-based Developers Diversified Realty.

In an e-mail, DDR's vice president of leasing-anchor store redevelopment, Bryan Zabell, said his company's national leased rate of around 90 percent is lower than in years past, and he attributed the drop to bankruptcies among retailers, including companies like Circuit City.

Zabell said his company created an anchor store redevelopment department to focus on big-box spaces, adding that DDR's new business development team has generated more than $1.4 million in revenue commitments from temporary tenants who fill space in the anchor store redevelopment portfolio.

"So while we are always looking to fill space with permanent tenants," he wrote, "we also see opportunities for temporary and seasonal tenants."

The MPC report said that on a national basis, eight retailers accounted for more than 3,000 store closings in the past two years, and it cited analyst warnings that more closures and bankruptcies are likely in 2009 and 2010.

How that will affect Knoxville is hard to say, said Bob Talbott, president of Holrob Investments and Holrob Commercial Realty. Talbott said his firm has seen a rise in delinquencies of about two percent, but believes that figure isn't alarming.

In Knoxville, he said, "you don't experience the big downturns and surges in activity that other people do, so that helps us in the downturns. We don't have as many losses as other people might have."

Local retail performance also varies depending on location. The MPC report found that the highest local vacancy rate was in the Chapman/Alcoa sub-market, at 12.3 percent. The lowest vacancy rate was in the East sub-market, at 1.9 percent, although its total retail space was by far the county's lowest. The Northwest sub-market had the second-lowest vacancy rate, at 6.5 percent.

Justin Cazana, director of leasing for Knoxville firm Commercial & Investment Properties, said his firm has three retail centers including Western Plaza, a Bearden shopping center that recently signed a pizzeria and a ballroom dance studio as tenants.

Cazana said his firm isn't necessarily giving incentives to attract tenants, but "it's just taking a little while longer. People are taking their time, really making an effort to do all of their due diligence so they have all of their costs in place and are not surprised by anything."

When it comes to bigger tenants, though, landlords shouldn't necessarily give up hope.

Keith Widmer, president of First Commercial Real Estate, said drugstores are looking for deals, and grocery stores are still looking.

"As the economy has gotten tighter, people are eating at home more and more," he said. "You know, they're preparing more and more of those take-home type meals and things, and the grocery stores, their stock's booming."